I’ve spent the last 15 years in the tech startup community including several early stage ventures with successful exits in the healthcare space. I'm also a Top Writer on Quora (2012 and 2013) for several healthcare specific topics. I'm likely to include film references and quotes as in "All of life's riddles are answered in the movies." Twitter handle is: @danmunro

The author is a Forbes contributor. The opinions expressed are those of the writer.

When Healthcare Titans Compete - Patients Lose

For at least a portion of this week, there was a fair amount of focus on events at #1 First Street, NE in our Nation’s Capital. Over the course of 6 hours (spanning 3 days), the 9 Justices of the Supreme Court sparred with attorneys representing both sides of the Patient Portability and Affordable Care Act (PPACA). The coverage was compelling for armchair attorneys everywhere, but perhaps the best tea leaves of all were nowhere near First Street ‒ but rather Wall Street. It may not have been dramatic, but the vote there was fairly unanimous for an uptick to at least 5 of the biggest Healthcare Insurance companies – Aetna, UnitedHealth Group, Cigna, Humana and Wellpoint.

“What happens if the Court throws out the mandate as well as the insurance reforms? The insurance industry would get the benefit of many more customers because the subsidies would still be in place. But they would be healthy because the insurance underwriting and pre-existing condition provisions would remain. While the insurance industry would do well, the providers would still suffer the ACA’s payment cuts and not have as many patients coming in with insurance cards as they expected—particularly the most sick and costly for them.”

If that were to happen, it would also be contrary to the provocative view expressed earlier this year by Ezekiel J. Emanuel in his NYT Op-Ed piece ‒ The End Of Health Insurance Companies. Either way, I think we’ll wind up putting 4 words on the end of that headline ‒ As We Know Them. As an exclusive business, health insurance underwriting may well be winding down, but the business of data analytics around patient populations – at scale – over decades – is just beginning. Looking around the table, I don’t see a lot of other business entities that own that ‒ and its far from trivial. The question then becomes ‒ is it cheaper to buy the big data ‒ or the healthcare delivery entities?

All of which brings us to the second, perhaps larger story of the week ‒ between Highmark – Pennsylvania’s largest health insurer ‒ and the University of Pittsburgh Medical Center (UPMC) ‒ the states largest and oldest healthcare delivery system. The story itself has a rich history spanning decades, but according to an article that appeared Tuesday in the Wall Street Journal (Health-Care Rivals Battle For Patients in Pittsburgh) ‒ ”the war has revved back up.” The contract between the two titans is set to expire in June and contract talks which were on track appear to have stalled once again. Caught in the middle, of course, are patients and many of their doctors who are pawns in the battle between the two giant “non-profits.”

With some version of healthcare reform looming, and a system that’s tilting heavily toward value over volume, the industry is scrambling nationally to become more “vertically integrated.” That means that both insurers and hospital systems are jockeying for control of large patient populations ‒ and the providers that serve them. Insurers are acquiring hospitals and physician practices as a way to expand their business and hospital systems are pitting insurers against each other to secure better rates for their services. In the case of Pennsylvania, the dispute escalated quickly when Highmark moved to acquire UPMC rival hospital group ‒ West Penn Allegheny Health System. Adding fuel to the fire, UPMC struck new deals with Highmark’s national competitors Aetna, UnitedHealth Group and Cigna (among others). Quoted in the article was Bob Kocher, a former Obama administration health official who said:

“We’re going to see a lot of these fault lines. Pittsburgh is sort of the canary in the coal mine.”

For patients being treated at a UPMC facility ‒ with health insurance through Highmark ‒ the future is uncertain. The next group of patients at risk could be Medicare beneficiaries with Highmark plans. From the article and according to Don White ‒ the state Senate committee chair who oversees insurance:

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Big data is a challenge to healthcare and I agree that the Health Plans are in the best position to capitalize on the opportunity.

It really doesn’t matter that much who wins the ACA or ObamaCare fight in the Supreme Court. Politicized comments just prove the point. What is really important and interesting is – are we going to change the US health care system? Fundamentally change is going to require health care automation – health information technology. We need to think carefully about the current fragmented islands and whether we want to build bridges or bigger islands.

I agree – and I think the train is definitely on the track – we just don’t want patients to get the run around (or run over) in the process. It will be interesting to see how Pittsburgh resolves – SCOTUS decides – and the election plays out. Action packed year.

The health of our nation is reflected in its people. Hence, Health Care cannot afford to be an industry if to serve them. The following proposes to redesign the health care system in order to protect the nation and welfare of the people from the obsolescence of the current one. This is while assuring its benefit to strengthening the US economy with tax payer burden relief of existing Medicare and Medicaid programs.

1- To redesign the profit model of the health care / insurance and drug industry: They (the industry) spend a fortune on IT (information technology) systems where the sole purpose is for denying claims. Proposed is to have them instead process claims on behalf the Dept of Health. This is where they can make a percentage on each claim. Hence, the more claims processed, the more of a fortune they can amass. Consider that there are 300,000,000 Americans. That is regardless if employed or unemployed. Claims processors could bid for the business!

2- The claims for health services provided (from a hospital, practitioner, etc) are to be sent to the Dept of Health. Obviously there would be normalization of pricing, but by no means intending to compromise quality that is provided. This does not mean that medical practitioners need to be the working poor, but obviously cannot price gouge either, as it would be more of a level playing field where quality at competitive prices from practitioners would be looked at favorably by the government.

3- To finance the cost of operations (practitioners, Dept of Health, IT operations, etc), tax exempt bonds are assumed. It is not a requirement that anyone buy into these, but frankly Wall Street would drop their pants to get them. As a private investor, such as in having a 401K, etc, what is left after taxes is not much. Tax exempt means tax exempt and for that matter considered from your gross income and not from your net. In investing in such bonds, you have further lowered your taxable income while having built a very large one for retirement; or to be redeemed at which time you wish.

4- The mechanics of finance: Let us assume that 25% of the total bond financing actually covers item #3 above. Then 75% is exercised on Wall Street to replenish the %25 that is to be used. If and when, and assumed often based on fair and competitive capital market practices, that the 25% exceeds its water mark (hitting 26 – 30%) as an example, that +% is returned to the investors who participate.

5- To appeal to greed is easy to do therefore this can be pushed much faster through Congress. The stake holders in item # 1 can have far greater profits. This is while achieving this with far less convoluted tactics rather than an antiquated bait and switch claim denial model.

6- Tax exempt investments will move the economy with far more momentum than otherwise – Wall Street has greater potential to make fortunes without having to be crooks –

7- Tax payer burden is relieved of an estimated $8 billion per year in costs for Medicare / Medicaid which would be considered obsolete federal and state programs.

Now could you imagine our three branches of federal government rally to a real solution ?

None of this would be a problem if payers had to pay exactly the same amount that patients have to pay, rather than getting away with paying 1/5th of what doctors charge.

If that were the case, then either *nobody* would be able to afford *anything* in health care (which wouldn’t be the case since nobody would buy anything and therefore the whole business would disappear), OR everybody would be able to afford everything out of pocket without insurance, except for catastrophic events that you insure against for everything else.

It’s a popular notion (retail #HC + catastrophic only coverage) – but it’s a mirage for 2 reasons.

1) Define catastrophic only. Anyone who attempts this isn’t underwriting the risk (ie: not real money). 2) It defies actuarial science – which needs the revenue from non-use/low-acuity coverage – as an offset to the more expensive procedures.

If you isolate catstrophic only coverage – the cost (if a carrier would even underwrite that risk) would be astronomical. It’s a little like saying home fire insurance only applies if your house burns completely to the ground – which is very rare – and the legal entanglements over what constitutes “to the ground” would be never-ending legal definitions, debate and denials.

All of which is kind of like what we had before Obamacare (pre-existing conditions, applications for and denials of coverage and no “minimum essential health benefits”).

No – we’ve been on the path of “selective health coverage” (SHC) for decades – and it’s helped to fuel the mess we’re in. Retail #HC + catastrophic coverage is simply a continuation of the ever upward spiral of SHC. It’s really a form of healthcare Darwinism.

It may be that the only thing Obamacare does is reverse that trend (SHC), but that alone is a good thing – and the right direction.

Our unregulated capitalism has allowed the whopping costs of medicine in this country. In other industrialized countries the goverments there curtail the costs for medicine, and internet as well, to allow for reasonable profits but protect the citizenry as well. We seem politically to want to return to the unfetterded capitalism of the Gilded Age; so read up on Charles Dickens, Upton Sinclair and Teddy Roosevelt to see what’s in store for us. And please Mr. Munro no quotes from Scott of Florida as far as the profit motives of health care companies considering his track record as CEOof one that stole millions from Medicare and Medicaid.